Deni Ghifari and Radhiyya Indra, Jakarta – A series of surprise economic policy changes by the government and Bank Indonesia (BI) has offered markets a dose of reassurance, succeeding where previous rhetoric fell short. However, experts caution that more concrete measures are required to sustain the positive momentum.
On Tuesday, the central bank hiked the interest rate by 25 basis points, which was a decision made outside the normal, scheduled board of governors meeting that this month is set to take place on June 18.
Another policy was also introduced during the day, namely a handshake deal among Deputy House of Representatives Speaker Sufmi Dasco Ahmad, State Secretary Prasetyo Hadi, executives from state-owned banks and state asset fund Danantara, who agreed that stock buybacks were necessary as a response to the recent stock market rout.
Before the day turned, state-owned energy giant Pertamina also increased the price of the most popular unsubsidized gasoline brand Pertamax, whose price had been held at bay even when the prices of other brands had gone up significantly not long after the Middle East conflict flared up.
The rupiah and the Indonesia Stock Exchange (IDX) Composite index both improved on Wednesday.
Economist Intelligence Unit (EIU) Asia analyst Tay Qi Hang said the measures the authorities had introduced the previous day "were an important factor" behind Wednesday's rebound.
"Verbal interventions from Indonesian officials have largely lost their market-moving power, and yesterday's episode actually illustrates the contrast well. It was the BI rate decision and the specific yield incentives that moved the needle, not the press conferences," Tay told The Jakarta Post on Wednesday.
He noted that there was room for a technical rebound "once authorities signaled they were taking the situation seriously" because Indonesian "markets had been oversold".
Tay said the rate hike was "the most consequential signal" for the market because it demonstrated how BI was willing to prioritize rupiah stability "even at the cost of near-term growth; that's a credible commitment that foreign investors can price".
The rupiah at its strongest level traded at 17,832 per United States dollar on Wednesday before inching down to Rp 17,935 in the afternoon, which still marked a meaningful improvement from its nadir of Rp 18,218 recorded on Tuesday morning.
The IDX Composite also posted a 2.71 percent gain on the day to 5,902 at Wednesday closing, finally showing signs of life after continuous losses since the start of the month.
With the rupiah's value diminishing by 7.5 percent and the stock index going down by over 30 percent from the turn of the year, Indonesia's currency and stock index were among the world's worst performers.
No more rhetoric
President Prabowo Subianto on the same day also summoned individuals from the National Economic Council (DEN) for a meeting that among other issues discussed the restoration of confidence and trust in government policies.
DEN member Chatib Basri, a former minister who has recently been mentioned in reshuffle rumors as a replacement for Finance Minister Purbaya Yudhi Sadewa, indirectly said in a press conference after the meeting that the budget for the free nutritious meal program would be cut.
The decision to put Chatib in front of the cameras reflected the government's struggle to restore credibility with investors, according to economist Deni Friawan of the Centre for Strategic and International Studies (CSIS).
"What we're seeing today is essentially a crisis of confidence [in the government]," Deni told the Post on Wednesday, noting that repeated assurances from President Prabowo and other senior officials about the economy's fundamentals had failed to reassure markets.
"That's why Chatib spoke yesterday. He is someone the market considers credible," Deni added, describing him as a market-friendly technocrat who believes in mainstream economics.
Political analyst Kennedy Muslim of pollster Indikator Politik Indonesia also argued that the government's decision to involve Chatib sent a strong signal to markets that the government understood both the problem and the available solutions.
"This move is the clearest sign that the President has finally heard the market's concerns," Kennedy told the Post on Wednesday, saying recent moves such as a refocusing of the costly free meals program showed that the President was willing to adjust.
Tay of the EIU said the meeting could provide "some reassurance" that policymakers were monitoring market developments but the discussion alone did not budge market sentiment since it demanded to see "a credible medium-term fiscal consolidation path".
Likewise, Permata Bank chief economist Josua Pardede also agreed that the market might interpret the rhetoric as the government being aware of the pressure "but not enough to flip trust if not followed by concrete measures".
He told the Post on Wednesday that the statement on cutting the free meals program budget could become a positive signal provided that the government reveals a clear number, timing and its impact on the budget deficit.
"But if it's just a general statement not containing any details, the market would tend to view it as mere rhetoric," said Josua, adding that was not enough because the market needed a decision with a calculable impact.
"Rhetoric could help if they clarify the policy direction and calm expectations. But if statements are too optimistic, inconsistent or not supported by real actions, the market could instead interpret it as a sign that the government is downplaying the problem."
Syafrudin Karimi, an economics professor at Andalas University, told the Post on Wednesday that the improvement in the stock index and the rupiah exchange rate should be read as an initial response toward a stabilization signal from the policies, not the "final proof" for returning confidence.
Source: https://asianews.network/indonesias-economic-pivot-calms-markets-but-firmer-measures-needed